‘Higher for longer’ rates remain a threat to U.S. stocks after inflation data

The latest U.S. inflation data is unlikely to ease worries over persistently high Treasury yields that have gnawed on stocks over the last few weeks, investors said, although many believe the longer-term trend of cooling consumer prices remains intact.

With the S&P 500 already up over 16% year-to-date and stocks richly valued by some metrics, some investors believe equities from will struggle to make headway for the rest of 2023. The central bank concludes its monetary policy meeting on Sept. 20 and is expected to leave rates unchanged, though some investors believe it may deliver one more increase later this year.

JPMorgan has been one of the banks sounding the alarm on stock valuations, with strategists warning in a note on Tuesday that a metric based on real interest rates, which strip out inflation, shows the S&P 500 is over-valued by 14%. Overall, the firm estimates that the current real rate implies a forward price-to-earnings ratio of around 15 times to 16 times versus its current ratio of about 20 times.

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‘Higher for longer’ rates remain a threat to U.S. stocks after inflation dataBy David Randall NEW YORK (Reuters) - The latest U.S. inflation data is unlikely to ease worries over persistently high Treasury yields that have ...
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‘Higher for longer’ rates remain a threat to U.S. stocks after inflation dataThe latest U.S. inflation data is unlikely to ease worries over persistently high Treasury yields that have gnawed on stocks over the last few weeks, investors said, although many believe the longer-term trend of cooling consumer prices remains intact. In the 12-months through August, the CPI jumped 3.7%, though year-on-year consumer prices have come down from a peak of 9.1% in June 2022. While that data does not necessarily argue for more rate increases, it did little to dispel expectations that the Federal Reserve will leave interest rates at current levels for longer than previously expected, a view that has boosted Treasury yields while dulling the allure of stocks since the equity market peaked in July.
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